Rough Guide to Self-Assessment

As much as we regret it, and unless you're dabbling with criminality… there is one thing in life that is certain...we all have to pay tax.

Tax laws and in particular income tax laws, have changed and have become seemingly more complicated in recent years and none has courted as much controversy as Self Assessment (SA).

Accountants find it a lucrative line of business as taxpayers suddenly turn into gibbering illiterates on sight of the new eight page form that requires completion. We try to give a rough guide to what SA is, which will hopefully dispel some of the fears.

What is Self-Assessment?

Self-Assessment was introduced on 6 April 1996 to try and make filling out tax returns easier with the opportunity for taxpayers to calculate and pay the tax themselves.

Who is Applicable?

Self-Assessment is applicable to:

• Self employed people including business partners
• Company directors
• Those with more complicated tax affairs including people who pay higher rate tax and trustees.

The New Form

You will have to fill out a basic Self-Assessment tax return, which covers things such as allowances and your employment details. If you receive other income, such as monies from part-time work or share dividends you may also have to fill out a separate supplement.

If you are in a partnership then each member will have to fill out his or her own tax return. The liability will then be calculated on an individual basis. There are different supplementary pages depending on your circumstances. If you only received the basic form but feel you have to also fill out a supplementary form then contact your tax office, quoting your national insurance number and where possible your tax reference, which you can sometimes find on your payslip. Remember, it is your responsibility to find out if you need supplementary pages.

When are the Deadlines?

In previous years tax returns had to be sent back by the 5th April but with Self-Assessment you are given two choices. If you want the Inland Revenue to calculate the tax for you then the return must be filed by 30th September. If you want to calculate the tax liability yourself then the return must be completed and sent back by 31st January.

Keep your Paperwork

It is important that the information you provide in your Self-Assessment is correct and properly filed away. Out of the thousands of returns that are sent back to the Inland Revenue, only a sample is actually investigated and verified. If you happen to be one of these people, be prepared to show all your relevant documents, such as payslips, receipts and vouchers for the scrutiny of the revenue. Failure to show your records can mean paying a penalty of up to £3000 each time.

If you feel that you have been unfairly treated then you have a right to take your appeal to the Appeal Commissioners, which is an independent tribunal.

Keeping records is important not only that you don't get fined, but to save you money. Failure to keep accurate records means that you could end up paying too much tax.

Penalties and Fines

With two separate deadlines you are given ample opportunity to get your tax return in on time. But life is not as easy as that. After missing the September deadline it is easy to relax and take it easy thinking that the January deadline is far enough to leave it again. This can be a dangerous and expensive tactic. If your completed return is not filed by 31st January then you will automatically invoke a £100 fine. If you still haven't learnt your lesson and fail to hand it in for a further 6 months then you'll incur a further £100 fine.

You do a have right to appeal if you have a good enough reason but if still haven't sent in your return then you can expect to pay up to £60 per day in fines for the privilege.

If you are so incapable that you still don't send in your return after 1 year, then the Inland Revenue will find it reasonable to hammer you with a fine equal to the amount of tax that you will be liable for. And if you're on a high two figure or three-figure salary, that can be quite a hefty sum.

Additionally, interest can be added to your liability if you fail to settle your tax bill after managing to send your return in. This can be 5% on any outstanding liability. However, any overpayment in tax will attract interest, which is tax-free!

Pay by Installments

One benefit of the Self-Assessment system has been the option to spread your payments through installments. Based on the tax liability of the previous year, you can pay half of the tax owed by 31st January and the balance on the 31st July. If you find that you still have any outstanding liability then you can pay this before or by 31st January of the following tax year. Confused? Then you're doing well.